What are sidechains and how do they work?

If you are active in the crypto world, you probably also know that more and more blockchains are running into scalability issues. This resulted, for example, in you having to pay sky-high transaction fees to use Ethereum's blockchain.

Fortunately, more and more solutions are being found for these kinds of problems. One of those solutions are sidechains. In this article, we'll explain to you what sidechains are and how they work and will also name the benefits.

What are sidechains?

The sidechain is a blockchain that is separated from the main blockchain in order to process transactions in a smoother manner. It allows data to be transported and processed unilaterally before being reinserted into the main blockchain.

But why is a sidechain necessary? Well, the biggest problem that blockchains face today is scalability. By this we mean the blockchain's ability to keep processing speed high, regardless of the number of transactions it has to process.

When platforms like Bitcoin or Ethereum began to gain prominence and were used by many people, their ability to process transactions quickly faced problems. You've probably heard about the scalability issues that both blockchains face.

Currently, Bitcoin processes about 7 transactions per second (TPS), while Ethereum can process twice as many. This is still not enough considering the high transaction fees users had to pay in 2020 and 2021 as the network became overloaded.

The solution: sidechains

One of the most effective solutions to combat these problems is through sidechains. It's a term you're seeing more and more of blockchains use because they want to get ahead of these kinds of problems. Fortunately, it is not difficult to understand what a sidechain is.

The blockchain, of course, works in a decentralized way. Transactions are stored in a block, and then these blocks are linked together. This creates the chain of blocks, which is also where the name "blockchain" comes from.

Setting up another blockchain in parallel with this main blockchain could significantly improve the capacity of the entire blockchain. So, this other blockchain is called the sidechain, and can perform specific tasks. In this way, a sidechain can be specialized in one or a few tasks.

The moment the sidechain has performed its tasks, it will send the data back to the main blockchain. Then the main blockchain will use this data to perform its tasks again.

What tasks can a sidechain perform?

A sidechain can perform various tasks. This can be different for each blockchain, as each blockchain also works in a completely different way. This efficiency ensures that a sidechain can always be useful for a blockchain project.

These are some of the tasks that most (existing) sidechains perform:
- Processing smart contracts
- Distributing data
- Processing data from oracles

By separating these types of tasks from the main blockchain, it can focus itself much more on the most important tasks. As a result, users are less likely to experience scalability issues.

How do sidechains work?

So, the sidechain is basically an extension of the blockchain, attached to the blockchain to perform specific tasks. In the crypto world, the blockchain is called the main chain, while the chain used to support it is called the sidechain. Both are connected by a two-way link (to exchange data).

To easily understand the process of delegating processing between the blockchain and the sidechain, it is best to take an example where someone is performing a transaction.

When someone performs a transaction on the sidechain, they will need to send their tokens to an output address to avoid duplication. The moment the validation process is complete, the entire transaction is executed in parts by the nodes of the main blockchain.

On the other hand, the side and blockchains are organized by a so-called federation system. A federation is a cluster of servers that acts as an intermediate station between the two chains. It manages the locking of data registered in the sidechains to prevent duplication. This is needed against double spend attacks, for example.

Why doesn't every blockchain use sidechains?

Once you've seen what the main advantages of sidechains are, you might ask yourself why not every blockchain uses them. Even though more and more blockchains are using sidechains, there are still plenty of blockchains that don't. And there are several reasons for this.

While sidechains delegating tasks can facilitate the transaction processing process, it is not always suitable for all blockchains, as designing a sidechain can be very expensive for a platform. This is true not only for the development team, but also for the users. This is because multiple miners need to be paid for their work, which causes transaction costs to increase.

In addition, it can sometimes be difficult to add a sidechain when a blockchain is already in full use. A hard fork will then have to be created after which all nodes will have to migrate to the new update. If this does not happen, there is a possibility of two different blockchains running side by side.

It is therefore not possible for every project to use a sidechain for the main blockchain. However, nowadays there are more and more developers who use sidechains to make the main blockchain work properly.

The main advantages of sidechains

There are many different benefits to using sidechains. For starters, data security is increased via the sidechain because it operates independently of the main blockchain. Therefore, the risk of a hack on the main blockchain or on the sidechain becomes much smaller when using a side and main blockchain.

Second, the nodes of the sidechain are separated from the nodes of the main blockchain. For example, a sidechain that processes a smart contract cannot process transactions outside of this sidechain. This also ensures that the miners of the main blockchain cannot perform the activities of the sidechain.

Let's not forget the most important benefit, which is transaction speed. The scalability of a blockchain platform depends primarily on its ability to handle a large group of users and transactions at any given time.

Many altcoins have decided to close their doors due to a lack of computing power to process millions of transactions. Therefore, despite the high price, it is in the interest of each platform to calculate the potential of its blockchain to plan a sidechain solution.

Conclusion

Blockchains continuously face new problems. Since crypto has become more and more popular, more and more transactions are also performed on the blockchain. In some cases, the blockchain can no longer handle this large number of transactions, which also increases transaction costs.

Fortunately, there is a solution to this scalability problem: sidechains. These are blockchains that work in parallel with the main blockchain and perform specific tasks. Because they perform these tasks, the load on the main blockchain is eased and the transaction speed can be increased.

Combined with the many other solution to scalability problems, this problem will hopefully be a thing of the past in the future. This will allow us to enjoy even more of the benefits that blockchains provide.